For businesses that bundle products or services, a KFC dip pot dispute has thrown VAT treatment into sharp focus. Irena Scullion explains what the Upper Tribunal ruling means and what you should do now.
Although the case arose in a fast-food context, the principles apply across any sector where bundled offerings are common. The ruling makes the initial classification of a transaction more critical and reduces the scope to influence VAT outcomes through how products are structured.
From dip pots to dispute: How the case unfolded
The dispute centres on how Queenscourt, which operates KFC outlets, treated the VAT on takeaway meal deals.
Historically, Queenscourt treated its meal deals as a single standard-rated supply, meaning VAT was charged at 20% on the full price. In 2019, it reassessed its position and concluded that meal deals should instead be treated as a multiple supply, in other words, a collection of separate items rather than one combined product. This would allow certain components, such as dip pots, to be analysed separately and potentially treated as zero-rated (meaning no VAT applies).
To correct earlier VAT overpayments, Queenscourt submitted claims to HMRC covering past periods. HMRC initially accepted this approach and repaid the VAT claimed in respect of dip pots.
However, a later review led HMRC to change its position. While accepting that some items (such as cookies or yoghurts) could be treated as separate supplies, HMRC argued that dip pots were ancillary, essentially a minor add-on, to the hot food and therefore formed part of a single standard-rated supply. HMRC subsequently rejected a further repayment claim and sought to recover VAT it had already repaid.
Queenscourt appealed. The First-tier Tribunal sided with HMRC. The case then progressed to the Upper Tribunal, where the key question became: how should multi-element transactions be analysed for VAT purposes?
